Lease Management Solution ROI

by Madhu Natarajan 2014

Lease management system ROI is not just about bottom-line cost reductions. A state-of-the-art leasing solution does more than lower costs; it also improves your team’s ability to win new deals and serve your customers.

Madhu Natarajan, CEO, Odessa Technologies
Madhu Natarajan,
CEO,
Odessa Technologies

A big challenge that finance management solution providers in this industry face is the longevity of legacy systems. The rule of thumb used to be that systems were typically replaced every seven to 10 years. But that number has grown, over the past decade, to 10-plus years.

Many factors underlie this trend, some of them obvious, some less so. One perennial is the simple fact of inertia. Unless faced with a compelling impetus to change, organizations are hesitant to undertake the expense and disruption of replacing a legacy solution and its supporting ecosystem of interfaces, customized development and workarounds.

Adding to the inertia, this compensatory infrastructure keeps a lot of people busy and secure, as the exclusive holders of ancient and obscure expertise gained through many years of tending to the aging client. In some cases, they form a cross-functional special interest group, with a predilection to resist the introduction of a new system.

But this is not to say that the people who keep the old system alive and manageable are in any way self-serving. To the contrary, their work is not only necessary, it also serves to enable the organization to avoid the expense and disruption of adopting a new solution whose ROI is not seen as compelling.

The usual mindset when considering the replacement of a legacy system is to ask:

  • What are the sunk costs represented by the purchase, implementation, maintenance and enhancements to the incumbent system, as well as to the supporting ecosystem of interfaces, reports and add-ons? Can we continue to amortize those costs?
  • What would be the ROI of a new system, as represented by various kinds of improvements in productivity and reductions in hard costs? (For example, replacing hard-copy documents with e documents can eliminate substantial costs in paper, printing, courier services and storage.)
  • Given the savings that a new system would generate, how long would it take us to recoup the cost of the new system and its implementation, including the cost of rebuilding interfaces and other infrastructure requirements, migrating data and users from the old system to the new, retraining both internal as well as external users, etc. — plus opportunity costs and other kinds of overhead associated with the disruptions caused by the transition (change management).
  • How do the net-net costs of a new system compare to the costs of adding new headcount and widgets to compensate for the growing burdens of the incumbent system?

Depending on the costliness of the limits of the incumbent system and the workarounds it requires, the ROI model for a new system may add up to a financially convincing argument. This is the kind of arithmetic that sets the tone for the conversations we have with prospects every day. And I would venture to say that the same is true for the other technology providers in the industry. The story almost always takes this form: the folks in the trenches running the day-to-day operations have been sounding the alarm for years, hoping to persuade senior management of the need for new and better solutions. But, to their continuing disappointment, the budget goes to serve other needs and fuel other initiatives.

One thing I’ve learned over many years of software consulting is that when faced with a seemingly insurmountable problem, one always-dependable source of guidance is our community of clients. These people, of course, are the very same ones with whom we had the ROI conversation during the sales process. So we decided to go back to them to validate the assumptions underlying those conversations in order to assess the accuracy of their expected ROI.

And here’s where things got interesting. We were surprised to learn that our customers had developed a more comprehensive and useful definition of “solution ROI” than the one we’d brought to bear back when we were hoping to persuade them to buy.

For customers, the kinds of savings they’d realized due to more efficient use of headcount and IT resources, reduction or elimination of manual processes, the ease of integration made possible by a services-oriented architecture, the ability to build customized reports quickly and intuitively, the availability of vendor and partner portals, were all benefits that delivered cost reductions to their bottom lines. But, in case after case, these were not the kinds of benefits that they wanted to talk about. Instead, their key focus was on the ways that the new system was helping them to grow their business, to compete more effectively, to meet evolving customer needs with greater agility and do a better job of growing their relationships with their own customers.

What we learned was an important and ironic lesson: While we had invested many years and many dollars to bring to market a system that we knew would offer great advantages over the legacy systems it was designed to replace, we had nonetheless brought a legacy mindset to our selling process and to our approach to communicating the scope of the ROI of what our solution had to offer.

Back in the day when the legacy systems with which we compete were conceived and created, it made perfect sense to develop an ROI argument firmly based on the reasons for creating those systems: to replace a host of manual, often paper-based operations with one in which machines transformed manual tasks into computer-based tasks. The key paradigm used to describe that revolutionary transition is, it turns out, the same one that dominates the conversation today — automation. And when we took a look at the kinds of ROI arguments we were bringing to the sales process, it became clear that we were still speaking the legacy language, even if only in an updated form.

We were essentially telling our prospects that we could show them a way to get machines to do things that had been painfully slow and manual. And that was true, to be sure. But we were still describing the ROI of the system in the language of the first generation of development: enhance productivity, make fewer errors, eliminate manual processes, get the deal into the system faster, ensure that tasks are properly completed and handed off. In other words, we were still speaking the language of the factory where the machine’s purpose is to enable workers to do more and do it faster.

But why, we wondered, would smart people like us and our competitors still be speaking in such antiquated terms? Our question got even more interesting when we went back to our customers to get their assessment of their post-implementation experience.

We found that users of our system described the benefits of the new system in terms that were specific to their role within the finance team. Of course, cost reductions and enhanced productivity will always be seen as important measurements of the value of a system, and especially so by the CFO or operational management whose focus was on the measurable returns on the system investment.

But other members of the lease management team focused on other benefits correlated to their role in the contract management lifecycle. For example, someone on the origination sides of the team will focus on how the system enables them to support the direct or vendor sales force more effectively, resulting in improved rates of deal acquisition and enhanced competitiveness. Someone in pricing might focus on their new-found ability to customize payment streams. Someone in contract management might zero-in on the accessibility of lease maturation reports. For the person handling customer service calls, the top benefits might be the ease of access to updated payment information or the ability to track payoff quotes. Lessor sales execs will often point to how the ability to offer dedicated customer portals helps them to land new vendor business. Or they may talk about how a dynamic integration with CRM helps them anticipate and pursue extensions and upsell opportunities.

By listening carefully to our users’ views of what constitutes “returns” for them, we’ve become convinced that the kinds of ROI that get talked about during our sales cycle don’t really get the attention of the people that will be using the system; their focus is on building the business, being seen by their customers as easy to work with, providing new mediums through which customers can connect with them, effectively supporting the sales force, and enabling their customer service teams to be more responsive. In other words, for lease management professionals in the field, the ROI focus is not just on cost reduction and productivity but, rather, on how a new solution enables the entire team to be more effective in delivering value to their customers at each stage of the contract management lifecycle.

Madhu Natarajan is CEO for Odessa Technologies, Inc. Under his stewardship Odessa has become an internationally recognized leader in the leasing industry with major clients across the globe. Natarajan has spoken on a wide range of leasing topics at various national and international forums. He has also written for leading industry publications.

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